The consumption conundrum

As a child, I believed my Grandparents were rich. Each time we went to visit at Christmas, they were always giving us money and it felt like winning the junior lottery! In reality they weren’t, far from it in fact. So where did their money come from? They had more because they spent less. It seems very simple, doesn’t it? But it was true. So how does it relate to the future of our industry and our business?

Consumption. My Grandparents had more because they used less. They had all the same basic things as everyone else (shelter, food, power, water etc.) but because they used less (only what they needed) their “bills” were less. Even more importantly they never let anything go to waste. Did anyone else’s Grandparents dry out teabags on the washing line to reuse again for the next round of tea? Or put empty tin cans in the wood fire so the tin cans continued to release heat after the fire had died down?

Too often the focus of our industry is on producing more out of what we have, typically to meet the needs of increasing consumption. Here are some interesting statistics on consumption:

When the global population was 2,600,000,000 people (c1950), we had 53,000,000 cars – which works out to be one car per 50 people. When the population hit 6,000,000,000, there were 500,000,000 cars –one car per 12 people.

Grazing occupies over a quarter of the Earth’s terrestrial surface and feed crop production requires about a third of all arable land.

Global oil consumption grew from 59.9 million barrels a day in 1980 to 86.9 million barrels a day in 2010. Yet In 2005, gasoline consumption per capita in North America was 1,618 liters per person, whereas in developing countries it was 61.4 liters per person.

The uptake of air-conditioners continues to grow, with 144,300,000 units expected to be sold between 2011 and 2017. Air conditioners place one of the heaviest loads on electricity infrastructure; creating a need for peak power plants that may only operate for a few days each year.

There are now an estimated 6.6 billion cell phones in use. The average time between upgrading phones is 18 months, even though most phones are still completely functional and capable of being upgraded.

Industrialized nations, representing only 20% of the world’s population, consume 87 percent of the world’s printing and writing papers, and global production in the pulp, paper and publishing sector is expected to increase by 77% from 1995 to 2020. The pulp and paper industry is the single largest consumer of water used in industrial activities in OECD countries and is the third greatest industrial greenhouse gas emitter, after the chemical and steel industries. Yet paper is one of the easiest materials to recycle and reuse.

Americans waste about 141 trillion calories worth of food every day. That adds up to about $165 billion per year – four times the amount of food Africa imports each year.

If only we could adopt the mentality of my Grandparents, perhaps we could resolve some of our global issues. There is a fundamental difference between getting more from what we have than using less to achieve the same result. For example, can we get a production plant to produce the same amount but using less resources, rather than can we get the production plant to produce more using the current resources. If we can consume less to achieve the same result, then that would leave more to share around for those who may need it.

As an industry, I would like to see us strive to work with our clients to improve efficiency and reduce/remove/reuse/recycle waste. To ensure that every drop of oil, gram of mineral, watt of energy is used to its fullest.

We’ve accepted that the struggles in our industry are in correlation with the commodity price of O&G and minerals. Oversupply has played its part in contributing to the depression on prices. We may have to accept that we have therefore contributed to our own struggles in our search to achieve higher production for our clients from their assets. Could we have achieved higher margins for our clients by maintaining the current production levels but reducing the cost to produce them? Working in Procurement I’m always aware how much a 10% saving on costs can impact on margin and what an equivalent increase in sales volume is required to produce the same result; just see the below table. The bigger the percentage cost of the sale price, the bigger the required increase in sales.

I believe the future for our industry, our business and the world is a reduction in unnecessary consumption, a reduction in waste and the sharing of resources equally.

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Paul Morris was a Lead Buyer at WorleyParsons New Zealand and is now working for our Corporate Responsibility Dept. He specialized in the buying and timely delivery of capital equipment for large engineering and construction companies in the oil & gas and nuclear sectors.

5 Comments

Paul, A great point, and some super statistics – I observe it is my ‘1st world peers’ who are cutting back on consumption (ie replacing their cars with Uber, buying smaller homes etc) but how can we slow or reverse overall consumption, especially as the developing world has an appetite for ‘more’ and aspirational lifestyles? Is there an impractical target of a equalised/sustainable/comfortable level for all?

Paul, I 100% agree. Why are we always chasing more, more, more rather than squeezing everything we can out of what we’ve got. The way we live is unsustainable and the efficient (some may say ‘thrifty’) companies will come out on top, especially if their employees behave in a similar way in how they live their lives.

Marni, whilst as individuals we can always strive to look at our own consumption and temper that down. I think it is industry that need to look at there waste. If we take the food example above. The majority of that figure comes from business. Supermarkets only putting on shelves the best looking food and scrapping the rest or discarding food close to its best before (that is best before not use by – there is a difference). The restaurant industry waste a lot of food too. Food growers/processers, to cater for 1st world perceptions of “attractive” food, don’t use everything they produce.

The key word you use is a sustainable lifestyle. Equality here is a word that is difficult to fit. Do we want to equip every third world person with an excessive wardrobe of clothes, top end mobile phones and 2 cars per family similar to those in first world countries? Not really. We want them to have a sustainable life with shelter, food, clean water, sanitation, health and well being. We should also strive to live a sustainable lifestyle: electric cars recharged via renewable energy, recycling mobile phones when we upgrade, changing our attitude towards food (maximizing use, reducing waste, packaging etc.), designing homes to maximize the cooling nature of the wind instead of relying on air conditioning units and the heating of the sun rather than the use of mechanical heating. It amazes me how much paper we still use in our offices…

Chris, I feel like the conversations with our clients need to take a different route. Oversupply has killed oil prices. We went to our clients with the message “we can get your assets to produce more” when it wasn’t required. We should have went to them and said “we can make your assets produce the same for less”. We would have then improved their margin. As the graph (crudely) shows. The impact of reducing cost is so effective on the bottom-line of any company. If proportion of your sale price attributed to costs is high then the equivalent increase in sales required to produce an equivalent impact than a small reduction in cost is huge. So why are we trying to produce and sell more?